Quote:
Originally Posted by Mr. Sandman
Yeah, I understand the intent of the rescue package but I don't understand how when 90+% of the loans are sound how it could get to the point where you loose big banks like this.
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Well, it looks like the ones who were holding a large % of the riskier loans are getting hit the hardest. People were looking for new investments, and the credit default swap allowed for investments into securities that wouldn't normally be attractive.
Additionally the scheme gave companies false confidence that they didn't need to protect themselves from a large percentage of defaults.
So the economy slows down, foreclosures skyrocket, and the lenders don't have the resources to pay the bills for those holding the liability on the loan. It's like any business, at the end of the day you either need to have a black balance sheet or credit to get a loan. Lacking either and you can't keep the lights on.
At least, that's how I think it happened.
-spence
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